ASSISTANT COMMISSIONER OF INCOME TAX-1(1),, RAIPUR vs. SHRI SHARAD GOEL, RAIPUR

O R D E R

Per Arun Khodpia, AM :

1. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 5,77,59,138/- made by the AO on account of excess value of land treating as unexplained capital gain thereby completely ignoring the provisions as per section 45(3) of the IT act, 1961?" 2. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. Rs. 5,77,59,138/-, thereby not considering and not distinguishing the findings of the AO which is well supported by the ratio of the judgment of the Hon'ble Supreme Court of India in the case of Smt. Sarifabibi Mohmed Ibrahim Vs Commissioner of Income tax, on 14. Sep. 1993. Further, reliance is placed on High Court of Madras in PCIT, Chennai vs A. Lalichan [2019] 104 taxmann.com

30. (Madras). 3. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 5,77,59,138/-, when the onus was on the assessee to prove the genuineness of the agricultural land, land used for agricultural purpose which was questioned by the AO, and the assessee failed to produce the evidence on which the AO could make a proper assessment of the assessee's income?"

4. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 3,98,000/- made by the AO on account of profit earned after sale of land even though the assessee has not added the same to his total income?" 5. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 79,00,000/- made by the AO on account of sources of investment in property as undisclosed sources since the assessee failed to explain the source of such investment?" 6. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 39,30,000/- made by the AO on account of sale of immovable property and there by ignoring the findings of the AO that the assessee has sold immovable property at Rs. 1,96,50,000/- along with four other members but the assessee has not included his share of income in his total income. 7. Whether on points of law and facts and circumstances of the case, the Id. CIT(A) was justified - in deleting the addition of Rs. Rs. 79,00,000/- as the CIT(A) having concurrent powers of the AO u/s 250(4) of the Act, was not justified in deleting the addition made by the AO on the ground that the onus is on the assessee to prove the source of a sum of money found and invested for purchase of land?" 8. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in accepting the fresh evidence produced by the assessee , if any without allowing the AO, proper opportunity to examine the same, thereby violating the provision on law under Rule 46A of IT Rules?" 9. Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in ignoring the ratio of Hon'ble Delhi High Court in the case of CIT-II vs. Jansampark Advertising & Marketing (P.) Ltd. reported in [2015] 56 taxmann.com 286(Delhi) held that "though it is obligation of assessing officer to conduct proper scrutiny of material, in even of assessing officer failing to discharge his functions properly, obligation to conduct proper inquiry shifts to commissioner (Appeals) and they cannot simply delete addition made by assessing officer on ground of lack of inquiry." 10. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in deleting the additions made by the AO, thereby giving a decision in favour of the assessee and against the revenue though there is no nexus between the conclusion of fact and primary fact upon which conclusion is based?"

5 Further, as per section 45(3) of the income tax act, 1961 "The profit and gains arising from the transfer of a capital asset by a person to a firm in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purpose of section 48, the amount recorded in the books of account of the firm, as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. In view of the above, the excess valuation amount arising from the transfer of land at Rs. 5,77,59,138/- is added back to the total income of the assessee u/s 45(3) of the IT Act, 1961.”

5.1 The ld. CIT-DR further draw our attention to the observations of ld. CIT(A), wherein the observations of ld. CIT(A) are as under:-

“I have considered the grounds of appeal, gone through the submissions of the appellant and seen the order of the AO and heard the rival contentions during the appeal hearings. The view taken by the AO that the land transferred to the firm is undervalued and did not represent the market value is not borne out by facts or supported by material on record and remains unsubstantiated, rather as will be clear in the subsequent para's the appellant had declared the market value and the difference with the book value thereof was accounted for in the return of income filed.

The AO has further held that the impugned land was not agricultural but a capital asset and in denying the claims of the appellant the AO has placed reliance on the decision of the Hon'ble Supreme Court in the case of SarifabibiMohd Ibrahim reported in 70 Taxman 310. The facts of the case referred to are, the assessees were co-owners of a plot of land situated within municipal limits and at a distance of 1 km. from the Surat railway station. A portion of the said plot was converted to non-agricultural purposes while the remaining extent continued to be registered as agricultural land. On 15-3-1967 the assessees agreed to sell remaining part of land to a housing co-operative society. To enable them to complete the transaction, the assessees applied on 12-6-1968 and 19-3- 1969 for permission under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948. The permission was granted on 22-4-1969. Thereafter a number of sale deeds were executed in respect of the said land between 9-5-1969 and 30-5-1969. The AO sought to levy capital gains tax on the consideration received by the assessees 6 treating the said land as non-agricultural land. The assessees' contested the same contending that the land sold was an agricultural land. The ITO rejected the assessees' claim. On appeal, the AAC upheld the order of the ITO. On second appeal, Tribunal held that the said extent of land was agricultural land and, therefore, no capital gains tax was leviable thereon. On reference, the High Court held that the said land was non-agricultural land which was confirmed by the Supreme Court. The Hon'ble Court further held, Whether a land is an agricultural land or not is essentially a question of fact. Several tests have been evolved in the decisions of the Supreme Court and the High Court, but all of them are more in the nature of guidelines. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. The Court has to answer the question on a consideration of all of them a process of evaluation. The inference has to be drawn on cumulative consideration of all the relevant facts.

In their submissions before the AO and during the appeal proceedings the appellant produced certificates from the Patwari (Revenue Officer) wherein it was certified that the impugned land is located 9Kms beyond the Raipur Municipal limits. In the Kisht Bandi Khatauni the Revenue Officer has further certified that the impugned land was duly irrigated, and specified the crops grown in the impugned land during the period under consideration. These documentary details of the Patwari are for the FY 2010-2011 relevant to the AY 2011-2012 under consideration which indicate that the land was agricultural on which agricultural activity was carried out.

Perusal of the reasons recorded u/s 148(2) of the Act for reopening of the case u/s 147 the AO has stated, it would be worth mentioning here that initially the assessee was in possession of a capital asset (the impugned land) and converted its investment into stock- in-trade of the firm on 31/03/2011 ie in the financial year 2010-11, thus it is proposed to treat the conversion as transfer under the provisions of section 2(47) of the I-T Act. It will be treated as transfer under the provisions of section 2(47) of the I-T Act. It will be treated as transfer in the year in which capital asset is converted into stock-in-trade of the firm M/s Singhania Goel Buildcon. The above lands were transferred to the firm for the purpose of developing colony and plotting of land and it's consequential sale. For the said purpose, the firm applied to the Sub-Divisional Office (Land Record) and obtained colonizer's license on 22/07/2011. Subsequently the assessee firm also obtained permission from the Department of Town & Country Planning Nagar Nigam Raipur for diversion of land and development A few facts as seen from records need to be put in the right perspective. From the partnership deed dated 31-03 2011 relevant to the Assessment Year 2011-2012 the appellant has adopted the market value of the land at Rs 6,19,29,383 which is appearing at Para NO: 7a) of the deed and also mentioned at Para No: 5 of the reasons recorded in u/s 148(2) of the Act. The difference between the Book value of Rs 41,70,245 and market value of Rs 6,19,29,383 being Rs 5,77,59,138 has been disclosed in the return of income in the computation of income under the head exempt income. Coming to the issue of applying for Colonizers license by the appellant appearing in the reasons recorded for reopening the case, this was done by the appellant to practice and do business in future as a colonizer and has nothing to do with the impugned land in question for the year under consideration. What business the appellant wants to do in future for which he had applied for the license cannot be linked with the land in question for the current year and no adverse view can be taken on it because of the license so applied for. The Patwari who is a Revenue officer has certified that the impugned land was agricultural during the year which was diverted for non- agricultural use vide approval of the Add. Collector Raipur order No: 750/A-2/14-15 dated 26.09.2015 w.e.f. 1.10.2015 which is a period subsequent to the one under consideration.

The AO has not offered rebuttal with evidences against the contentions of the appellant that the land introduced by him in the firm is agricultural land. The AO has not offered any counter argument or evidence against the claims of the appellant. In fact the order of the Addl. Collector cited above further strengthens the submissions of the appellant that the land prior to conversion was agricultural and if it was not agricultural land there was no requirement for such conversion order to be made. The decision of the Hon'ble Apex court relied upon by the AO is not applicable in view of the distinguishing facts narrated above. The Hon'ble Patna High Court held in the case of Additional Commissioner of Income Tax v Tara Chand Jain reported in 123 ITR 0567, Since the land has been recorded in the official records as agricultural land, if the department wanted to show that entry was wrong, it should have given some concrete facts in that direction. For example, it could have shown that the land lay within the municipal limits of the town of Ranchi or that the assessee had made his entire plot of land into parcels and was selling each of them for the purpose of constructing a house thereon. The Hon'ble Gujarat High Court held in the case of Commissioner of 8 Income Tax v Manilal Somnath reported in 106 ITR 0917. In a sale of plot of land, to decide whether the land is agricultural or not, what has to be considered is what was the character of the land at the time when the sale took place and not what the purchaser did or was supposed to do with the land.

In view of the above facts and circumstances and judicial pronouncements the addition on account of excess value of land and treating it is a capital asset is unwarranted. The addition made is deleted and ground No: 4 is allowed.”

5.2 The ld. CIT-DR further submitted that the AO has made a correct observation on the issue, however, ld. CIT(A) without appreciating the facts of the issue in its entirety has deleted the addition which was well supported by the ratio of judgment by the Hon’ble Supreme Court of India in the case of Smt. Sarifabibi Mohmed Ibrahim vs. Commissioner of Income tax dated 14 Sep. 1993. The ld. CIT-DR further placed her reliance on the case of PCIT vs. Chennai vs. A. Lalichan, reported in [2019] 104 taxmann.com 30 (Madras). 5.3 The ld. CIT-DR also mentioned that the onus on the issue to prove the genuineness of the agricultural land being used for the purpose of agricultural which was questioned by the AO, was on assessee, but the assessee was squarely failed in discharging the same. Therefore, the observation of ld. CIT(A) was grossly on error and deserves to be reversed. On the issue / observation of the Ld CIT(A) that the AO has not caused sufficient enquiry or not offered opportunity of rebuttal to the assessee, the ld. CIT-DR placed her reliance on the judgment of CIT-II vs. Jansampark Advertising & Marketing (P.) Ltd. reported in (2015) 56 taxmann.com 286 (Delhi), wherein the Hon’ble High Court of Delhi has observed as under:-

9 “IT : In case of unaccounted entries found in books of account of assessee, though it is obligation of Assessing Officer to conduct proper scrutiny of material, in event of Assessing Officer failing to discharge his functions properly, obligation to conduct proper inquiry shifts to Commissioner (Appeals) and Tribunal and they cannot simply delete addition made by Assessing Officer on ground of lack of inquiry.”

5.4 Based on the judgment in the case of Jansampark (supra), the ld. CIT-DR challenged the observations of ld. CIT(A) mentioning that, even if the Assessing Officer was missing in making the enquiries on the assessee or has not offered the opportunity of rebuttal, it is the duty of Commissioner (Appeals) to conduct further enquiries thereon, he cannot simply delete the addition made by the AO. It is, therefore, the submission that observations of the ld. CIT(A) which were without any further enquiry on the issue are unjustified, unreliable and are liable to be quashed. 5.5 On the other hand, countering the arguments of the Ld CITDR, ld. AR on behalf of the assessee has submitted that, the addition made by invoking the provisions of section 45(3) was incorrect, since the land under consideration transferred to partnership firm was an agricultural and not a capital asset. No under valuation of the land by the assessee. The AO has wrongly believed that there is undervaluation of land transferred as capital contribution to partnership firm M/s Singhania Goel Buildcon. Our attention was drawn to page 30-31 of the paper book containing reasons recorded u/s 148 (2) of the Act. by the Ld AO, wherein the Ld AO has furnished a statement showing Book Value (41,70,245/-), Market Value (Rs. 6,19,29,383/-) and Excess Value (Rs. 5,77,59,138/-) as on 31.03.2011. it was the submission that Ld AO has formed an erroneous belief that on 10 account of omission and failure on the part of assessee to disclose full and true particulars of income and make a correct return income, the income chargeable to tax has escaped assessment for the AY 2011-12 within the meaning of section 2(c)(ii) of section 147 of the IT Act. and has reopened the assessment in the case of assessee initiating the proceedings u/s 147 of the IT Act. To oppose the contention of the Ld AO in reopening the assessment, Ld AR further drew our attention to page 35,36 of the paper book and had shown the computation of the assessee’s taxable income, wherein a note no 8. It is very categorically has disclosed that the “Profit on sale of agricultural land Rs. 5,77,59,138/- exempt from tax u/s 10”, thus, it was the submission of the Ld AR that the allegation of the Ld AO that the failure was on the part of assessee, was unjustified. It was the argument of the Ld AR that the assessee’s case for the AY 2011-12 was already assessed u/s 143(3) of the Act, a detailed assessment was made by the Ld AO, all the necessary compliance during the said scrutiny assessment proceedings were duly completed by the assessee (copy of assessment order u/s 143(3) was also incorporated in the paper book of the assessee at page 132 to 140), the claim of the assessee regarding Profit on sale of agricultural land Rs. 5,77,59,138/- exempt from tax u/s 10 was very much there in the computation of total income, thus the allegation of the Ld AO for reopening the case that the assessee was failed in its duty to disclose full and true particulars of income was bereft of merit and devoid of any substance. On this issue, Ld AR placed his reliance on the judgment of Apex Court in the case of NDTV Vs DCIT 92020) 424 ITR 0607.

11 5.6 Carrying the argument further, Ld AR of the assessee drew our attention to page 20 of the PB showing copy of partnership deed wherein the value of impugned land transferred by the assessee to partnership firm was taken at Rs. 6,19,29,383/-. 5.7 Ld AR also furnished before us copies of two certificates of Patwari dated 25.03.2011 (PB Pg. 32,33), wherein it is certified by the Patwari that the land is situated at a distance of 9KM from the limits of Raipur Nagar Palika and is being regularly in use of agriculture. It was the contention of the assessee that since the land transferred is an agricultural land situated beyond 8 Kms from the end of municipal limit and this fact was not disputed by the Ld AO. As stated by Ld AR, all the more, the certificate for change of land use of the transferred land by additional collector of diversion department issued in October 2015 9copy enclosed at page 95 of the PB), categorically, mentions that the use of transferred land has been changed to Non-agricultural, thus this itself justifies that the land transferred by the assessee on 31.03.2011 was an agricultural land. 5.8 Another contention with respect to future use of the land, Ld AR submitted that the assessee was in possession of the agricultural land, which was transferred to the partnership firm, if the purchaser decides to change it use for some other purpose, the same is not in control of the assessee. Reliance was placed on following judgments: i) Commissioner of Income-tax v. Cochin Malabar Estates & Industries Ltd, reported in (2022) 440 ITR 0121 (Ker) wherein Hon’ble Kerala High court has held that:

13 CIT Vs. Dr. N Rangabashyam, reported in (2017) 99 (ii) CCH 185 (Chen HC), wherein it was concluded by the Hon’ble Madras Court that : “Capital assets had specifically been defined in Section 2 (14) to exclude agricultural land. 5.9 In view of the above submissions Ld AR requested to uphold the order of Ld CIT(A), wherein the addition made by the AO was deleted.

5.10 We have considered the rival contentions, perused the relevant material on record and referred the case laws relied upon by both the parties. Before adjudicating the issue raised in ground 1 to 3, 8 & 9 of the present appeal, this is to clarify that this is appeal is filed by the revenue and there is no cross appeal / CO filed by the assessee, thus the grievance raised the assessee regarding validity of reopening u/s 147, which is not arising from the grounds of instant appeal is out of the scope of our adjudication and thus we refrain ourselves from deliberating on the same.

5.11 Regarding ground no 1 to 3, 8 & 9 of the present appeal of the revenue, on merits, we observe that, it is an undisputed fact the all the documents relied upon by the assessee in support of its contention that the land transferred was an agricultural land. It is also a fact on record that there was a Profit on sale of agricultural land Rs. 5,77,59,138/- which was considered as exempt from tax u/s 10 by the assessee and duly disclosed in the computation of income and the same was submitted to the Ld AO along with the ITR submitted u/s 139 of the Act. It is further substantiated with the aid of certificates from government authorities i.e. Patwari and thereafter Addl. Collector, Diversion Division that the land is situated 14 beyond 8 Kms from the municipal Limits, was regularly in use for agricultural work and subsequent to the transfer of land the land use was changed to Non-agricultural. It was rightly observed Ld CIT(A) the Ld AO has jumped on the conclusion, based on his belief that the case of assessee is covered by the judgment in the case of Sarifabibi Mohmed Ibrahim (supra) without remarking any reasoning as to how the same is identical with facts of the assessee’s case. Against the principle of Natural Justice, no opportunity to rebut was provided to the assessee, while drawing such an adverse inference against the assessee, and summarily decided the issue against the assessee by Ld AO. On the argument raised in ground no 9 of this appeal by the revenue relying upon the judgment in the case of Jansampak Advertising (supra) that it was the obligation of Ld CIT(A) to conduct proper inquiry, if the AO was unable to do so, cannot be accepted in the present case, since all the requisite inquiries were made, information were called for and duly deliberated by the Ld CIT(A). According to the order of Ld CIT(A), the department was duly represented by the Ld AO, ACIT 1(1), Raipur, who has made his submissions too, before the Ld CIT(A), thus there was no violation of rule 46A, as the issue raised under the ground 8 of the present appeal. On the factual matrix of the issue, it is transpired from the documentary evidence that the land was transferred on 31.03.2011, by way of execution of a partnership deed to the partnership firm, at the time of transfer, as certified by the Patwari vide his certificates dated 25.03.2011, the land was regularly in use for agricultural and categorised as an agricultural land. Later on, the land use of the land was 15 changed to non-agricultural as per approval of the Addl. Collector Raipur w.e.f. 01.10.2015, vide order no 750/A-2/14-15 dated 26.09.2015. In backdrop of such facts and circumstances, in absence of any cogent evidence against the assessee to prove that the land transferred was not an agricultural land eligible to be exempt within the meaning of section 2(14) of the Income Tax Act, 1961, also no resemblance in the facts of present with regard to applicability of the case of Sariffabibi Mohamed (Supra) relied upon by the revenue has been established, thus, no rescue for department. 5.12 We therefore in terms of our aforesaid observations, are of the considered view that the addition made by the Ld AO has no foundation to stand on, at the same time Ld CIT(A) has very elaborately, judiciously and deliberately discussed the issue and granted the relief based on substantial evidence, thus, we affirm the same. In the result ground 1 to 3 of the revenue are dismissed. Ground no 4 : deleting the addition of Rs. 3,98,021/- on account of profit earned not considered in total income.

16 6.1 Ld AR in response to the contention of the revenue has submitted that the joint venture for construction of a commercial project “Atlantis” was between assessee and 4 other members, who have contributed by way of the land and M/s Ahuja Projects India (P) Ltd (the developer) have taken the responsibility of construction. The appellant has booked a share of profit Rs. 2,26,290/- from sale of units / offices under the said joint venture, this fact was further substantiated by the Ld AR by showing P&L account of M/s R K Agarwal as on 31st March 2011, at page 97 of the paper book. It is further evident from the ledger account of M/s R.K. Agarwal, placed at page 100 of the paper book that an amount of Rs. 50,00,000/- was invested by Assessee in M. Ahuja Projectes India (P) Ltd. On perusal of the observations of the Ld CIT(A), the allegation of ld AO regarding receipt of “On Money” from joint venture project by the assessee of Rs. 3,00,000/- remains unsubstantiated, thus, the same was based on presumption without any material evidence. In view such submissions Ld AR had prayed that the allegation imposed by the Ld AO on the assessee were baseless, presumptive, devoid of any merit and thus rightly dismissed by the Ld CIT(A), consequently deserves to be upheld. 6.2 We have considered the rival submissions & contentions, perused the material on records and observations of the revenue authorities. Undoubtedly, the assessee has shown the profit from joint venture as income in its P&L account as proprietor of M/s RK Agarwal as correctly observed by Ld CIT(A), copy of duly audited final accounts were produced. Ld AO was unaware of the fact that share of profit from joint venture is part 17 of income offered for tax, without considering the submissions of the assessee, had made certain interpretations but were dismissed by Ld CIT(A) after a through examinations of the evidence and facts. The addition made was without any cogent material without any valid justification cannot sustain on the basis of presumptive allegations, hence the same is liable to be deleted and rightly so Ld CIT(A) has deleted the same, therefore we affirm the finding of Ld CIT(A). Resultantly ground no 4 of the appeal of the department is dismissed. Ground nos 5 & 7 :deleting the addition of Rs. 79,00,000/- on account of undisclosed source of investment 7. Apropos, ground numbers 5 & 7 of the revenue, Ld CITDR drew our attention to para 5 of the assessment order and submitted that on perusal of the ITS data, the assessee has purchased immovable property to the tune of Rs. 79,00,000/- during the year under consideration. In this regard, the assessee was asked to explain the source of such investment. But the assessee failed to do so. In the view of the above the assessee has invested amount as undisclosed sources. Therefore, the total amount at Rs. 79,00,000/- added in the hands of the assessee. LD CITDR relied on the order of Ld AO and submitted to restore the same by setting aside the findings of the Ld CIT(A) on this issue. 7.1 Ld AR on other hand has submitted that the immovable property / Land at Purena was purchased on 26/02/2011 for Rs. 79.00 Lac, which is duly shown in the books of accounts of the assessee and demonstrated by placing before us the copies of Registered Land Purchase Deed (page 109- 123 of APB), ledger accounts of Jagdish Singh Saini, the seller of land in 18 the books of Aarson Motors (page 107-108 of APB) , Bank Account (page 104-105 of APB). It was the submission of the Ld AR that the transaction of purchase was made through payment by account payee cheques, all the relevant information along with evidence submitted before the Ld AO but the same were not considered by the Ld Ao and has summarily made the addition. It is further submitted that the Ld CIT(A) has properly inspected all the relevant evidences and only after a thorough examination has arrived at a reasoned judgment that the sources of the purchase of land from the business income of the appellant along with verifiable purchase details and recorded in the books of accounts for the year under consideration cannot be held as investments from undisclosed sources as alleged in the assessment. Thus, it was the prayer of the Ld AR that issue decided by Ld CIT(A) deserves to be upheld. 7.2 Having heard the representatives of both the sides. On perusal of the orders of the revenue authorities, after carefully considering the submissions of the assessee and evidence produced before us, factually, the addition enforced by the Ld AO was inspired by the ITS data, enquiry made by the Ld. AO was responded by the assessee along with copies supporting documents, but the explanation of the assessee was rejected by the Ld AO without assigning any plausible reasons to the same. On perusal of the Ld CIT(A) on the issue, wherein the same has been deliberated in detail, it is observed that the transaction done was well corroborated with the supporting documents / information, thus, the same cannot be held as a bogus transaction or investment from undisclosed 19 sources. In view of such facts, we find substance in the findings of the Ld CIT(A) to delete the addition made by Ld AO, accordingly, we are of the opinion to uphold the same. Resultantly Ground no 5 of the revenue stands dismissed. Ground no 6 : Deleting the addition of Rs. 39,30,000/- on account of sale of immovable property but the assessee has not included his share of income in his total income.